1 00:00:02,360 --> 00:00:05,760 Speaker 1: Global business news twenty four hours a day at Bloomberg 2 00:00:05,800 --> 00:00:08,880 Speaker 1: dot Com, the radio, plus mobile lap and on your radio. 3 00:00:09,160 --> 00:00:13,360 Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters. 4 00:00:13,360 --> 00:00:16,400 Speaker 1: I'm Charlie Pallott. Stocks are trading higher after this morning's 5 00:00:16,480 --> 00:00:19,120 Speaker 1: jobs report. We have got thirteen minutes to go ahead 6 00:00:19,120 --> 00:00:23,840 Speaker 1: of the close. SMP five hundred index maybe on track 7 00:00:23,960 --> 00:00:27,600 Speaker 1: for a record right now, up twenty nine points twenty seven, 8 00:00:27,600 --> 00:00:30,440 Speaker 1: a gain of one point four percent. Nass Stack hired 9 00:00:30,440 --> 00:00:33,360 Speaker 1: by seventy four points, a gain of one point five percent. 10 00:00:33,760 --> 00:00:36,479 Speaker 1: Dow In dust reels up two hundred thirty five points, 11 00:00:36,479 --> 00:00:39,159 Speaker 1: a gain of one point three percent. The tenure of 12 00:00:39,240 --> 00:00:42,280 Speaker 1: five thirty seconds had yield one point three six percent. 13 00:00:42,640 --> 00:00:45,879 Speaker 1: Gold up three ninety ounce the thirteen sixty six. That 14 00:00:46,040 --> 00:00:48,920 Speaker 1: is a gain of three tenths of one percent. Crude 15 00:00:48,960 --> 00:00:52,280 Speaker 1: oil West Texas Intermediate twenty barrel again there are at 16 00:00:52,400 --> 00:00:56,520 Speaker 1: point one percent. I'm Charlie Tallott. That's a Bloomberg Business Flash. 17 00:00:57,680 --> 00:01:00,720 Speaker 1: You're listening to Taking Stot with Kathleen Days and pim 18 00:01:00,800 --> 00:01:04,240 Speaker 1: Box on Bloomberg Radio. How do you provide for the 19 00:01:04,360 --> 00:01:09,560 Speaker 1: retirement of thousands of people who are public employees? Particularly 20 00:01:09,600 --> 00:01:13,399 Speaker 1: in the Arkansas Public Employees Retirement system. Well, first you 21 00:01:13,480 --> 00:01:17,360 Speaker 1: ask Carlos Borromeo, he is the chief investment officer based 22 00:01:17,360 --> 00:01:20,440 Speaker 1: in Little Rock, Arkansas, how to do it? Carlos, thank 23 00:01:20,480 --> 00:01:22,319 Speaker 1: you very much for being with us. Well, thank you 24 00:01:22,360 --> 00:01:26,080 Speaker 1: for having me so in the Arkansas Public Employees retirement system, 25 00:01:26,280 --> 00:01:29,640 Speaker 1: you have a responsibility to all of those retirees to 26 00:01:29,880 --> 00:01:33,480 Speaker 1: meet those retirement benefits. How are you doing that? When 27 00:01:33,480 --> 00:01:35,960 Speaker 1: you look at a thirty year US Treasury bond that 28 00:01:36,040 --> 00:01:39,399 Speaker 1: trades at two point one per cent, it's definitely been 29 00:01:39,440 --> 00:01:42,320 Speaker 1: a challenge of situation and having it seems like he 30 00:01:42,360 --> 00:01:44,760 Speaker 1: wants to continue even lower. It's going to pose an 31 00:01:44,760 --> 00:01:49,320 Speaker 1: even greater challenge on all retirement systems. You know, I 32 00:01:49,400 --> 00:01:54,920 Speaker 1: think the people who keeps the levelhead and don't start 33 00:01:54,960 --> 00:02:00,080 Speaker 1: reaching for yield and unnecessary risks. Um, you've got to 34 00:02:00,160 --> 00:02:03,000 Speaker 1: keep your cool in this environment. Well, Carlos says that help. 35 00:02:04,000 --> 00:02:05,880 Speaker 1: We've no each other for a long time over the 36 00:02:05,960 --> 00:02:08,640 Speaker 1: years of my different news organizations and your different roles, 37 00:02:09,040 --> 00:02:11,840 Speaker 1: and you've been an arranging bond bull for some time. 38 00:02:12,000 --> 00:02:15,400 Speaker 1: You've been addicting an ever lower level of long term yields. 39 00:02:15,440 --> 00:02:17,240 Speaker 1: You've said that the United States was gonna look more 40 00:02:17,240 --> 00:02:19,440 Speaker 1: and more like Japan. I don't think we necessarily there. 41 00:02:19,440 --> 00:02:23,040 Speaker 1: You and I could debate that, but um, what is 42 00:02:23,080 --> 00:02:26,040 Speaker 1: it that has driven this position and has it helped 43 00:02:26,040 --> 00:02:29,600 Speaker 1: you then in your role not be blindsided by this, 44 00:02:29,680 --> 00:02:32,640 Speaker 1: but somehow at least be able to avoid any negative 45 00:02:32,639 --> 00:02:35,480 Speaker 1: fallout or take advantage of it in terms of the funds. 46 00:02:36,120 --> 00:02:38,720 Speaker 1: As far as avoiding it, it's it's certainly helped. I 47 00:02:38,720 --> 00:02:40,560 Speaker 1: think I have one of the lowest allocations in the 48 00:02:40,600 --> 00:02:45,480 Speaker 1: state two fixed income UM my target, and I'm still 49 00:02:45,480 --> 00:02:50,399 Speaker 1: sitting below that. So in that regard, it's definitely helped. Um, 50 00:02:50,600 --> 00:02:55,440 Speaker 1: but it's still worries me because I'm certainly overallocated to equities. UM. 51 00:02:55,560 --> 00:02:59,760 Speaker 1: So you're just trading one risk for another, and that's 52 00:03:00,000 --> 00:03:04,400 Speaker 1: that's the tricky part of sitting in this seat. Um Yeah, 53 00:03:04,440 --> 00:03:06,120 Speaker 1: I mean you and I have gone back and forth 54 00:03:06,200 --> 00:03:08,520 Speaker 1: over the years that we're looking more and more like Japan. 55 00:03:09,520 --> 00:03:12,120 Speaker 1: And I would argue if you you pull up the 56 00:03:12,200 --> 00:03:15,960 Speaker 1: j g B chart when jgbs were and running from 57 00:03:16,040 --> 00:03:21,239 Speaker 1: ninete to two thousand nine, so approximately twenty years. It 58 00:03:21,360 --> 00:03:24,600 Speaker 1: took the JGBS about twenty years to go from eight 59 00:03:25,480 --> 00:03:27,720 Speaker 1: so about where we are now one one and three 60 00:03:27,760 --> 00:03:31,840 Speaker 1: eight on a tenure note, it's taken us from two 61 00:03:31,840 --> 00:03:35,800 Speaker 1: thousand and sixteen, so twenty two years. So we're mirroring 62 00:03:36,000 --> 00:03:40,320 Speaker 1: their yield curve, whether we like it or not. Carlos, 63 00:03:40,360 --> 00:03:44,560 Speaker 1: the fund itself, the assets under manager, what are you 64 00:03:44,560 --> 00:03:47,960 Speaker 1: talking about? Maybe seven and a half seven half billion? 65 00:03:48,840 --> 00:03:53,960 Speaker 1: And uh, it's the funded status of the of the system. Uh, 66 00:03:55,600 --> 00:03:59,800 Speaker 1: something like that. Okay. Now, the reason I bring up 67 00:03:59,840 --> 00:04:02,440 Speaker 1: these numbers is because you know, when you manage a 68 00:04:02,480 --> 00:04:05,440 Speaker 1: system over a long period of time, and I think 69 00:04:05,440 --> 00:04:07,040 Speaker 1: it was in your own report you say that you 70 00:04:07,080 --> 00:04:11,240 Speaker 1: know the return for let's say two thousand and nine 71 00:04:11,440 --> 00:04:18,320 Speaker 1: was negative twenty to a high of plus in twenty eleven. 72 00:04:19,040 --> 00:04:25,520 Speaker 1: How do you manage that kind of volatility? It's not easy, right, Um, 73 00:04:25,600 --> 00:04:27,400 Speaker 1: if we all had a crystal ball when we look 74 00:04:27,440 --> 00:04:30,640 Speaker 1: at the allocation, look into the future. Um, you look 75 00:04:30,680 --> 00:04:34,320 Speaker 1: back and would we have allocated differently? Um? Would you 76 00:04:34,360 --> 00:04:36,880 Speaker 1: have allocated differently? Do you think? I mean not knowing 77 00:04:36,920 --> 00:04:38,359 Speaker 1: that you know what would happen, but would you have 78 00:04:38,400 --> 00:04:41,200 Speaker 1: made different decisions? I don't think we would have because 79 00:04:41,240 --> 00:04:44,960 Speaker 1: that becomes a board of trustees decision and if two eight, 80 00:04:45,040 --> 00:04:49,400 Speaker 1: two thousand nine didn't change how retirement systems allocate. I 81 00:04:49,440 --> 00:04:52,760 Speaker 1: think people are gonna, uh look at it steady as 82 00:04:52,760 --> 00:04:56,200 Speaker 1: she goes, be content with their allocation, and realize that 83 00:04:56,240 --> 00:05:01,480 Speaker 1: we're in this for a long run. Carlos. Where where 84 00:05:01,520 --> 00:05:03,880 Speaker 1: how much closer are we to the bottom? I mean, look, 85 00:05:03,920 --> 00:05:05,920 Speaker 1: we had we had a tenure note down to about 86 00:05:06,440 --> 00:05:09,040 Speaker 1: what was it? One point three six? The thirty year 87 00:05:09,080 --> 00:05:11,479 Speaker 1: bond was down to what around two point two four? 88 00:05:11,480 --> 00:05:13,720 Speaker 1: Maybe the lower in terms of yield higher in terms 89 00:05:13,720 --> 00:05:16,039 Speaker 1: of price. I mean, the lower you go, the more 90 00:05:16,080 --> 00:05:18,320 Speaker 1: you have to be closer to the bottom. Have we 91 00:05:18,400 --> 00:05:20,560 Speaker 1: had the bottom in bond yields for all the high 92 00:05:20,640 --> 00:05:23,359 Speaker 1: end price? Uh? And are we going to see some 93 00:05:23,440 --> 00:05:26,800 Speaker 1: selling or people gonna say, well, I could sell and 94 00:05:26,839 --> 00:05:29,080 Speaker 1: get some capital appreciation, but I want to hold onto 95 00:05:29,080 --> 00:05:30,960 Speaker 1: some of this fixed income. I bought it a higher yield. 96 00:05:31,480 --> 00:05:33,520 Speaker 1: I don't think we personally belong here, but I think 97 00:05:33,560 --> 00:05:35,800 Speaker 1: that people want to be in dollar denominated assets, which 98 00:05:35,800 --> 00:05:38,400 Speaker 1: means they'ren to come in and buy tenure notes and 99 00:05:38,440 --> 00:05:42,760 Speaker 1: pract push down to one down to one. Now you 100 00:05:42,839 --> 00:05:47,719 Speaker 1: have what about forty five thousand active members average ages 101 00:05:47,760 --> 00:05:53,680 Speaker 1: about forty five years. You have to project out well, 102 00:05:53,839 --> 00:05:57,359 Speaker 1: I would imagine on on a continuous basis to provide 103 00:05:57,400 --> 00:06:00,960 Speaker 1: what the monthly benefit, which is about a thousand dollars. Yes, 104 00:06:02,320 --> 00:06:04,800 Speaker 1: have you gotten any pushback from any of the retirees 105 00:06:04,839 --> 00:06:07,240 Speaker 1: saying look, I'm scared, I'm worried, I don't know what 106 00:06:07,279 --> 00:06:10,640 Speaker 1: to do. We haven't had any of the pushback yet, 107 00:06:10,720 --> 00:06:14,120 Speaker 1: but sitting in this role, I'm certainly worried. Worried that 108 00:06:14,240 --> 00:06:17,280 Speaker 1: about how you're going to meet the bogey, how you're 109 00:06:17,279 --> 00:06:20,159 Speaker 1: going to have get there enough money to pay help 110 00:06:20,200 --> 00:06:22,839 Speaker 1: these people receive their pensions. Is that you're absolutely and 111 00:06:22,880 --> 00:06:25,200 Speaker 1: you know we're hitting the baby boomer and they're starting 112 00:06:25,200 --> 00:06:28,400 Speaker 1: to hit the retirement period right now, and the demand 113 00:06:28,400 --> 00:06:31,039 Speaker 1: on benefit payments is only going to increase. So where 114 00:06:31,040 --> 00:06:33,560 Speaker 1: do you see the FED going? Is the FED going 115 00:06:33,640 --> 00:06:36,120 Speaker 1: to say stay where they are? Are they going to 116 00:06:36,240 --> 00:06:39,479 Speaker 1: say these these are these yields falling around the world 117 00:06:39,560 --> 00:06:42,039 Speaker 1: was potentially native signed. Are they going to say, hey, look, 118 00:06:42,080 --> 00:06:44,040 Speaker 1: the labor market is not doing so bad. You know, 119 00:06:44,480 --> 00:06:47,480 Speaker 1: jobs are growing about a hundred seventy thousand on average 120 00:06:47,520 --> 00:06:50,280 Speaker 1: for the last several months or year, getting to you know, 121 00:06:50,400 --> 00:06:52,680 Speaker 1: kind of rev up for the rate increase, and if 122 00:06:52,680 --> 00:06:57,240 Speaker 1: they do, is that is that bad because maybe it 123 00:06:57,480 --> 00:06:59,960 Speaker 1: hurts the equity market. Is it good because finally there's 124 00:07:00,000 --> 00:07:03,000 Speaker 1: a little more yield out there for people to earn. Well, 125 00:07:03,160 --> 00:07:05,280 Speaker 1: you're seeing the front end come up, come up in yield, 126 00:07:05,360 --> 00:07:07,400 Speaker 1: so you're seeing the flattening being led by the front 127 00:07:07,440 --> 00:07:11,040 Speaker 1: and which which is probably gonna be helpful. Um. I 128 00:07:11,120 --> 00:07:14,360 Speaker 1: personally think the FEDS on hold I. You and I 129 00:07:14,400 --> 00:07:17,760 Speaker 1: have had conversations back and forth. You know, I lost 130 00:07:17,760 --> 00:07:19,360 Speaker 1: the bet to you last year. I said it has 131 00:07:19,480 --> 00:07:21,880 Speaker 1: not raising rates at all in two thousands fifteen, and 132 00:07:21,920 --> 00:07:24,840 Speaker 1: they saved you in December, and then at the beginning 133 00:07:24,880 --> 00:07:26,640 Speaker 1: of this year, I said, the set's not raising rights 134 00:07:26,640 --> 00:07:29,360 Speaker 1: this year, and so far I don't think they're going to. 135 00:07:30,600 --> 00:07:33,240 Speaker 1: So I just think the data that's coming out, and 136 00:07:33,360 --> 00:07:35,280 Speaker 1: it seems like the data they're looking for is just 137 00:07:35,360 --> 00:07:38,480 Speaker 1: not there. Right. It seems like they wanted three things. 138 00:07:38,480 --> 00:07:41,680 Speaker 1: They wanted growth, they wanted employment, and they wanted inflation. 139 00:07:42,080 --> 00:07:43,520 Speaker 1: And I just don't know if they're gonna get all 140 00:07:43,520 --> 00:07:46,680 Speaker 1: three in one year. What would it take to get 141 00:07:46,720 --> 00:07:51,280 Speaker 1: all three in one year. I think it's beyond center banks. 142 00:07:51,680 --> 00:07:55,640 Speaker 1: I think it's gonna become um acts of Congress if 143 00:07:55,680 --> 00:07:59,240 Speaker 1: you will, what to provide more physical stimulus to the 144 00:07:59,240 --> 00:08:01,960 Speaker 1: economy and more pending. I just don't think secial stimius 145 00:08:02,080 --> 00:08:04,480 Speaker 1: is going to do it by itself. What I say, 146 00:08:04,520 --> 00:08:07,080 Speaker 1: it's not the FED fiscal stimulus alone isn't enough. So 147 00:08:07,120 --> 00:08:11,000 Speaker 1: what's it going to take? I don't have the answer 148 00:08:12,520 --> 00:08:16,280 Speaker 1: I wish I did. Negative interest rates? Is there any 149 00:08:16,360 --> 00:08:18,720 Speaker 1: chance the Fed is going to take now? Irana coach 150 00:08:18,800 --> 00:08:22,960 Speaker 1: Lakota's device, former head of the Minneapolis FED, take his 151 00:08:23,040 --> 00:08:26,680 Speaker 1: advice and uh consider tools like that. Is it going 152 00:08:26,720 --> 00:08:27,920 Speaker 1: to get to that? Do you think? And if so, 153 00:08:28,080 --> 00:08:29,720 Speaker 1: then what does it do for a guy like you 154 00:08:29,840 --> 00:08:32,920 Speaker 1: trying to manage public funds? You know, I don't think 155 00:08:32,960 --> 00:08:35,560 Speaker 1: any center banker two years ago would have said, yeah, 156 00:08:35,920 --> 00:08:38,679 Speaker 1: negative interest rates are certainly on the table, and our 157 00:08:38,679 --> 00:08:40,480 Speaker 1: own sort of reserve is saying the same thing. But 158 00:08:40,559 --> 00:08:42,199 Speaker 1: yet we can look at some of the countries right 159 00:08:42,200 --> 00:08:44,920 Speaker 1: now then they have a negative interest rates, not because 160 00:08:44,920 --> 00:08:47,720 Speaker 1: they want it, because that's where the market has taken it, 161 00:08:47,800 --> 00:08:49,840 Speaker 1: and were we may end up in the same boat 162 00:08:51,000 --> 00:08:53,800 Speaker 1: as far as acid allocation goes. Carlos, can you give 163 00:08:53,880 --> 00:08:55,960 Speaker 1: us an idea of what you may have changed. I know, 164 00:08:56,000 --> 00:09:00,360 Speaker 1: for example, that you've got US domestic equity securities. UH, 165 00:09:00,800 --> 00:09:02,800 Speaker 1: increased your allocation I guess last year about two and 166 00:09:02,800 --> 00:09:06,560 Speaker 1: a half percent. What what are you changing in your 167 00:09:06,600 --> 00:09:09,880 Speaker 1: asset allocation model? If anything? So far we haven't. But 168 00:09:10,040 --> 00:09:13,800 Speaker 1: with with the recent lower interest rates that we're experiencing, 169 00:09:13,840 --> 00:09:15,760 Speaker 1: I see we're gonna at that with discussion about it. 170 00:09:17,520 --> 00:09:20,720 Speaker 1: We're kind of discussion. I mean to allocate more money 171 00:09:20,760 --> 00:09:25,200 Speaker 1: to equities, perhaps to dividend paying equities, for alternative investments. 172 00:09:25,800 --> 00:09:28,959 Speaker 1: I think we'll definitely, I'm willing to look at alternatives. UM. 173 00:09:29,000 --> 00:09:32,880 Speaker 1: I think real assets, which I include real estate. UM. 174 00:09:32,920 --> 00:09:35,600 Speaker 1: I think there will be opportunities in Europe given the 175 00:09:35,640 --> 00:09:39,960 Speaker 1: Brexit situation for real estate. UM. So we're certainly going 176 00:09:40,000 --> 00:09:43,800 Speaker 1: to have to look at everything. Again. Are you at 177 00:09:43,800 --> 00:09:46,440 Speaker 1: all concerned about recession? It seems these you can look 178 00:09:46,440 --> 00:09:49,400 Speaker 1: at these latest job numbers Carlos and say, no, we're 179 00:09:49,400 --> 00:09:51,640 Speaker 1: gonna things may not be roaring here, but we're certainly 180 00:09:51,679 --> 00:09:56,120 Speaker 1: not anywhere in near recession. And yet you know, Pim 181 00:09:56,400 --> 00:09:58,760 Speaker 1: and I were talking earlier about the yield curve and 182 00:09:58,800 --> 00:10:01,000 Speaker 1: what its signal could be. The act that you once 183 00:10:01,080 --> 00:10:03,720 Speaker 1: jobless claims, an unemployment bottom, the only way to go 184 00:10:03,840 --> 00:10:05,880 Speaker 1: is usually back up. What do you see as somebody 185 00:10:06,040 --> 00:10:08,800 Speaker 1: from from this fixed income bond investment point of view, 186 00:10:08,800 --> 00:10:12,000 Speaker 1: where you've been in this perch for so long. Recession 187 00:10:12,080 --> 00:10:15,120 Speaker 1: is not a word that I've really worried about just yet. 188 00:10:15,160 --> 00:10:20,920 Speaker 1: I mean, it's certainly down down the road. Um, the numbers, 189 00:10:20,960 --> 00:10:27,000 Speaker 1: the job numbers itself, it seems okay, not stellar, not horrible. Um, 190 00:10:27,040 --> 00:10:31,000 Speaker 1: it just feels like the markets, especially the corporate bond markets, 191 00:10:31,040 --> 00:10:33,920 Speaker 1: the highland markets, there's more and more people coming into 192 00:10:33,960 --> 00:10:36,840 Speaker 1: it and they're grabbing yield, which is just a dangerous 193 00:10:36,880 --> 00:10:40,720 Speaker 1: thing to do. So as far as we're session, Kathleen, No, 194 00:10:40,840 --> 00:10:45,240 Speaker 1: I have not uttered those words yet, but could I 195 00:10:45,400 --> 00:10:49,800 Speaker 1: down the road? Certainly? Carlos Borrow mammo. Carl Carlos Borrow 196 00:10:50,120 --> 00:10:53,760 Speaker 1: Borrow mammo. He is chief investment officer at April's Arkansas 197 00:10:53,840 --> 00:10:58,160 Speaker 1: Public Employees Retirement System, joining us from Little Rock, Arkansas. 198 00:10:58,280 --> 00:11:01,360 Speaker 1: Uh makes you realize is that him and I people 199 00:11:01,360 --> 00:11:03,079 Speaker 1: like us. We talk about what's going on in the 200 00:11:03,080 --> 00:11:05,000 Speaker 1: bomb market. We ask a lot of questions. Boy, when 201 00:11:05,040 --> 00:11:06,560 Speaker 1: you have to be the person who puts the money 202 00:11:06,600 --> 00:11:09,040 Speaker 1: where the state's mouth is that's quite a job. And 203 00:11:09,080 --> 00:11:11,079 Speaker 1: in fact I am Kathine Hays along with Pim Fox, 204 00:11:11,080 --> 00:11:11,920 Speaker 1: and this is Bloomberg.